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Fiscal Policy Options

Terms in this set (14)

Classical economics
economies are free to regulate themselves
What does classical economics not address
how long it takes for a market to return to equilibrium
economies cannot be self regulated
keynesian economies
government must increase action to increase or decrease demand output

broader view of economy
productive capacity
-full employment output
-maximum output economy can sustain without increasing inflation
demand-side economics
government must spend money to pull an economy out of recession or depression
how can government pull an economy out of recession?
Increase production --> increase employment --> people spend more --> higher levels of production --> government reduces spending
What are the three sectors of Keynesian economics
government
business
individuals

- government can make up for changes in the other groups
- fiscal policy can and should be used to help the economy
fiscal policy can be used to fight
recession
inflation
how to preempt recession
watch people's spending, if there is a massive drop, upcoming recession
expansionary policy
government increases its spending
cut taxes
controlling inflation
contractionary fiscal policy
contractionary policy
increase taxes
reduce spending
decrease overall demand
multiplier effect
every one dollar change in fiscal policy creates a greater than one dollar change in national income
appropriations bill
a bill that sets money aside for specific spending
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